Well, there are several reasons. Incorporating your business has many advantages that will make it easier for you to operate and maintain your company, without being personally liable for any losses.
Perhaps the most important reason to incorporate is to protect your personal assets. This holds true for whichever business entity structure you choose, whether it is incorporation, LLC (limited liability corporation), or nonprofit – but it is not the case for a sole proprietorship or a partnership. If an incorporated business fails, or a dissatisfied customer or supplier brings a suit against it, only the corporate holdings are liable. Your personal property and finances will all be safe from legal action, as long as the business has not committed any fraudulent activity.
Another financial benefit of incorporating is the fact that a corporation, as a separate legal entity with a unique tax ID number, can establish credit, borrow funds, and sell equity to raise capital. The uncomplicated transfer and limited liability make investing in a corporation or LLC particularly attractive to those who might want to send some money your way.
Corporations also pay a lower federal income tax rate than individuals, and may also be eligible for tax deductions that are not available to sole proprietors or partnerships.
Another money-saving feature is the fact that you can generally incorporate your business by yourself, without paying an attorney. There are filing fees involved, and there is still research to be done, but there are resources that can help you every step of the way.
If you’re interested in establishing a long-standing business (and who isn’t?), incorporation is your best choice. Unlike a sole proprietorship, which ends with the owner’s death, a corporation will continue indefinitely, until it is dissolved. Your company can be carried on by future generations, or you may sell, gift or bequeath it to others. If you operate as a sole proprietor, you must remain at the root of your business, and cannot transfer it to another owner. On the other hand, a corporation can be transferred using shares of stock.
A final reason for choosing incorporation is the boost that it gives to your image. Marketing studies have shown that corporations and LLCs are viewed as more trustworthy by the buying public. These businesses give customers and suppliers a greater sense of security than an unincorporated company.
I’ve seen this happen, first-hand. For nearly 20 years, my brother-in-law ran an unincorporated contracting business, much to the chagrin of my husband, who runs a by-the-book incorporated company in the same field (but fortunately not in the same state). When he finally decided to incorporate, he was amazed at the increase in the number of calls he received from unsolicited clients.
The moral of the story? Take the time to incorporate. It will protect you and your business. It will give your customers faith in your company and your services. And you’ll be surprised at how happy it makes you the first time you see your company name in print – really, it’s a thrill.